Possible student debt forgiveness now tax free under new stimulus bill

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KANSAS CITY, Mo. — Part of the new stimulus bill could have big implications if President Joe Biden pushes ahead with plans to forgive some student loan debt.

The American Rescue Plan does not include student loan forgiveness, but makes any income from forgiveness of student loans tax-free through 2025. Forgiven debt is normally considered taxable income.

Robert Kelchen, associate professor of higher education at Seton Hall University, said right now the legislation impacts very few people, but that could change.

“It affects really a small number of people who took out loans in the 1990s, but it opens the door if there is mass forgiveness in the next few years, that would be tax-free,” he said.

Biden said he supports forgiving up to $10,000 in student loan debt, but progressives in the Democratic Party want at least $50,000 in debt forgiveness per borrower.

It’s unclear whether Congress will take up legislation or whether Biden will try and cancel some debt through executive action, a move that Kelchen said would almost certainly end up in court.

“The Trump administration issued an advisory opinion saying that the president can’t forgive student debt, but the Biden administration would see that differently and it would end up in court,” he said.

According to data from the Education Department, more than 42 million Americans hold federal student loans, with a combined debt of $1.5 trillion.

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